Robot Roulette

Returns depend on financing, increased milk

Robotic milking systems are viewed as a huge labor saver on small to medium-size farms. But that alone won’t pay the cost of the machines, especially if the labor saved isn’t put to more productive use somewhere else on the dairy.

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Robotic milkers must also increase milk flow or reduce other costs in order to make economic sense, according to Kristen Schulte, a farm and agribusiness management specialist, and Larry Tranel, a dairy field specialist, both with Iowa State University Extension.

The two have put together a partial budget for robotic milking systems. The budget compares expected changes in income with the expense of installation. "What we found is that there is a lot of variability with these systems," Tranel says.

In general, the systems require a 12- to 15-year amortization, rather than the seven-year schedule most lenders prefer for equipment loans. "From a cash-flow standpoint, it’s very hard to make these budgets work over seven or eight years," Tranel says.

So longer-term financing is key. "Robots might also fit for young producers who can access 1½% to 2% young farmer loans, or established producers who can cash in CDs that are now only earning 1%," Tranel says.

Increased milking frequency (and the corresponding production jump) is also a key economic driver of the robots’ success. If a herd is producing 60 lb. to 70 lb. per cow per day milking 2X and robots jump that production 10% by milking an average 3X, the extra income will go a long way toward making monthly payments. And that’s even if feed costs go up to support the extra milk.
"But a high-producing herd milking 3X risks losing some milk production with the robots," Tranel says.

The example budget prepared by Schulte and Tranel used a 140-cow herd, $17 per cwt. milk price and two robots priced at $210,000 per unit. Also included was a $10,600 annual maintenance agreement.

The herd had a 70 lb. per cow per day tank average on 2X milking, with a 7 lb. projected increase from more frequent milking through the robot. The increased income was estimated at $55,000 (along with a slightly better somatic cell count and fewer culls).

Milking and heat detection labor was valued at $15 per hour, including benefits and employment taxes. The robots’ software is also used for heat detection and improved management. Total labor savings were estimated at $33,763, for a total positive impact of $89,000 for the
robotic system.

On the expense side, depreciation over 10 years plus a 5.5% interest charge equaled $57,000 annually. Tack on another $20,000 for additional feed costs to support the higher
milk production. Add $12,350 for the annual maintenance contract and insurance and $945 for increased electricity use. Totaled, the increased expenses equal about $90,000.

There isn’t a lot of economy-of-scale benefit with robotic milking technology. Each robot can handle about 70 cows (milking and dry), and the savings and costs are pretty much the same as more robots are added to milk larger herds, Tranel adds.